MS Leader: Rent-back breathes its last
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The Financial Services Authority effectively gave last rites to the sale-and-rent-back market last week with its pronouncement that the market has shut its doors.
Two or three years ago a number of firms were looking to enter the market as they salivated over the prospect of a swathe of desperate borrowers needing an exit from their mortgages while at the same time wanting to stay in their homes. Mainly as a result of forbearance by lenders, that boom in repossessions has fortunately so far failed to materialise.
A gold star goes to the Council of Mortgage Lenders which called for rent-back to come under the FSA’s auspices five years ago. Must try harder for the FSA and then Labour government for failing to step in sooner to protect vulnerable borrowers - interim rules were introduced in July 2009 and full-blown regulation a year later. When it came, regulation helped ensure that the number of rent-back clients was small.
Only 27 firms gained official authorisation, which was whittled down to 22 once the FSA started to investigate their practices in March 2010 as part of a thematic review. Even then, only nine had been active since regulation had come into force.
But being regulated was hardly a mark of distinction. The FSA’s study, published last Friday, describes an industry struggling to maintain the most basic standards of advice. Inadequate fact-finding, massive fees, high pressure selling, poor systems and controls, a lot of deals that were inappropriate or unaffordable and, to top it off, fraud.
It will be interesting to see if any firms attempt to bring out a compliant rent-back product. But for now it looks like this section of the market has rightly had a stake driven through its heart.
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